What’s behind HPE’s Profit Margins
HPE’s operating margins stood at 8.4% in 3Q17
In fiscal 3Q17, Hewlett Packard Enterprise’s (HPE) non-GAAP (generally accepted accounting principles) operating margin was 8.4%. The Software segment had an operating margin of ~25%, followed by Enterprise Group at 9.3% and Financial Services at 7.8%. Peers NetApp (NTAP), IBM (IBM), and Nokia (NOK) had operating margins of 9%, 16.4%, and 9.2%, respectively, at the end of their last reported fiscal quarters.
Interested in HPE? Don't miss the next report.
Receive e-mail alerts for new research on HPE
To improve profit margins and offset the impact of high commodity prices, HPE announced cost savings of between $200 million and $300 million in the second half of fiscal 2017. HPE’s operating profit improved by 60 basis points in 3Q17 from 7.8% in 2Q17.
During the Deutsche Bank (DB) Technology Conference in September 2017, HPE chief financial officer Tim Stonesifer stated that “we’re making very good traction on that cost take-out, and that is more than offsetting some of the pressure we’re seeing on stranded costs given the fact that we’ve a full quarter now, VS, and some of the short-term dilution on the recent acquisitions.” HPE expects its profit margins to improve further quarter-over-quarter in 4Q17, and expects an operating margin of 11% for Enterprise Group.
HPE passing approximately 50% of commodity costs
HPE’s stranded costs are expected to be eliminated in fiscal 2017, which, coupled with short-term dilution, might provide tailwinds for the company in terms of profit margin improvement in fiscal 2018 and beyond. Additionally, HPE is passing around 50% of commodity costs to offset increasing prices. HPE expects profits to be impacted by $400 million–$500 million in fiscal 2018 due to pricing pressures.